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OMX, The Nordic Exchange Copenhagen, recommendations for Corporate Governance

Danfoss’ deviations from the recommendations from OMX, The Nordic Exchange Copenhagen.
Recommendation no. III.1
It is recommended that the Board adopts an information and communication policy. Furthermore, it is recommended that the company develops procedures which ensure that the company immediately publishes all essential information of importance about how the shareholders and the financial markets evaluate the company and its activities, as well as its business goals, strategies and results, unless publication can be omitted according to the legal rules of the stock exchange. The publication must be carried out in a reliable and adequate manner.

Danfoss is a family- and foundation-owned company and, therefore, it does not have the same duty to inform shareholders and the financial markets as a listed company. However, the Group has chosen to provide information of all material matters and events which have an impact on the fulfilment of the Group’s business targets, results and strategies in the same way as a listed company.

Recommendation no. III.2
It is recommended that the Board ensures that the continuous dialogue between the company and the company’s shareholders and potential shareholders is flexible.

As a family- and foundation-owned company, there is no need for daily, close communication with shareholders, unlike a listed company. Danfoss is in close contact with the Bitten and Mads Clausen Foundation and the Clausen family
and has also chosen to be in regular contact with the other shareholders, thereby acting in many regards as a listed company.

Recommendation no. V
It is essential that the Board is composed in such a manner that it is capable of handling its managerial tasks, including the strategic tasks of the company, in an efficient and forwardlooking way, and that, at the same time, it acts as a constructive and qualified sparring partner for the management. It is also essential that the directors always act independently of special interests. The Board must continuously ensure that its composition and its procedures reflect
the demands posed by the company’s current situation and circumstances.

An inevitable consequence of the type of owners Danfoss has is the fact that some of the Board members have special interests. However, the Board is aware of this. It is also important that its members have the required competencies. Thus, the current Board has a broad base and a global perspective that ensures it has the necessary competencies for Danfoss’ future development.

Recommendation no. V.1
It is recommended that the Board ensures there is a formal, thorough and transparent selection and nomination of candidates to make sure that the composition of any given Board will, as a whole, provide the Board with the skills that
are necessary for it to be able to perform its tasks in the best possible way.

Danfoss has chosen to present the Board candidates’ backgrounds at the Annual General Meeting and does not consider it relevant to provide information about the applied recruiting criteria or the Board members’ additional special competencies.

Recommendation no. V.10
It is recommended that the Board considers and decides upon the setting up of a committee, including a nomination, fee and audit committee.

Danfoss’ governance structure is considered to be sufficient for the Executive Committee and the Board to maintain their duties in accordance with the Standing Orders. Furthermore, the auditors are involved in all relevant items discussed at
Board meetings. At present, it has therefore been decided not to appoint nomination, fee or audit committees.

Recommendation no. V.11
It is recommended that the Board establishes an assessment process which continuously and systematically evaluates the work, results and composition of the Board and the individual directors, including the chairman, in order to
improve the Board’s work. The criteria for the evaluation should be clearly specified. It is recommended that the evaluation of the Board is carried out once a year; that the chairman is responsible for this and, if necessary, receives
external help; and that the result is discussed by the Board; and that the procedures for the Board’s self-assessment are stated in the annual report.

Danfoss has decided that the evaluation procedure should be carried out every second year. Otherwise, the recommendations are fulfilled.

Recommendation no. VI.2
It is recommended that the Board adopts a fee policy and that the company provides information about its content in the annual report.

The Chairman determines the fee and other financial conditions of the Executive Committee. The fee for the company’s remaining employees is regarded as part of the day-to-day business and, consequently, is the responsibility of the Executive Committee.

Recommendation no. VI. 3
It is recommended that the Annual Report includes information about the size of the total specified remuneration and other significant benefits paid to the members of the Board and the Executive Committee.

Danfoss has chosen to provide information about the Board’s and the Executive Committee’s specified remuneration and other significant benefits as a summarised statement because it has been decided not to provide information about the salary conditions of individuals on grounds of discretion.

Recommendation no. VI. 4
It is recommended that the Board is not paid using share option programmes, but for example through bonus programmes and shares at market rates and that the Annual General Meeting makes decisions on incentive
schemes for the Board.

The majority shareholders in Danfoss have specifically requested the introduction of a share-based bonus programme for Board members. Since Danfoss – as compared with other listed companies – is in direct contact with the great majority of its shareholders, Danfoss has been willing to fulfil the request of the majority shareholders, irrespective of the fact that doing so was not in keeping with the defined guidelines.